Cyprus and its financiers agree to bailout plan

BRUSSELS Struggling into the early morning hours to avoid a collapse of Cyprus' banking system, European Union leaders today agreed on a bailout package intended to keep Cyprus in the eurozone and rebuild its devastated economy.

The deal, struck after hours of meetings here, was approved by the finance ministers from the eurozone, the 17 countries that use the common currency. It would drastically prune the size of Cyprus' oversize banking sector, bloated by billions of dollar from Russia and elsewhere in the former Soviet Union.

The deal would scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders.

“We have a deal,” Cyprus President Nicos Anastasiades was quoted as saying by Greek media. “It is in the interests of the Cypriot people and the European Union.”

The head of the finance ministers, Jeroen Dijsselbloem of the Netherlands, said the agreement could “be implemented without delay” without a new vote by the Cypriot Parliament, which had rejected a deal last week, because legislators had already passed legislation Friday that set the framework for the new action. “This has indeed been an arduous week for Cyprus,” he said.

Under the proposed deal, Laiki Bank, one of Cyprus' largest, would be wound down and senior bondholders would take losses.

Depositors in the bank with accounts holding more than 100,000 euros would also be heavily penalized but the exact amount of those losses would need to be determined.

The plan to resolve Laiki Bank should allow the Bank of Cyprus, the country's largest lender, to survive. But the Bank of Cyprus will take on some of Laiki's liabilities.

Depositors in the Bank of Cyprus are likely to face forced losses rather than any form of tax. That plan, which set off outrage last week in Cyprus and as far away as Moscow, has now been dropped entirely, according to European Union officials.

These provisions, if put into effect, should help reverse what, in recent days, has been Cyprus' retreat into a pre-modern economy dominated by cash.

Without a deal, Cyprus had faced a deadline of tonight to avoid a banking collapse, as the European Central Bank threatened to shut off financing for banks without a rapid accord on the bailout.

In Brussels, the day was filled with confusion and rancor. Reports filtered out of heated confrontations between Anastasiades and European Union negotiators, and especially with the International Monetary Fund, which Anastasiades has accused of trying to push Cyprus up against a wall.

Anastasiades told officials including Christine Lagarde, head of the monetary fund, that accepting harsh terms might force him to step down. A message posted to his Facebook page suggested a stormy meeting.